Day 14: Contract

Chris calls Day 14 “Set Up a Way to Get Paid.” This chapter
covers selecting a payment system, creating invoices, and using simple
contracts. For your contract, he says you only need to specify what you’ll do,
how much you’ll get paid, when you’ll get paid, and “any protections you
require.” Chris also says that that you can communicate all of this via email
without needing a separate agreement document.

<cringe><shudder>

While Chris is technically right, I would never advise a
client to operate their business this way. This is the type of contract that
works when nothing goes wrong; however, contracts exist to save you in two
situations:

When there’s confusion about the parties’ obligations, and

When there’s a problem or dispute.

Always Have a
Separate Written Contract

If there is situation where lawyers are needed to resolve a
dispute, the first thing I ask my client is “Where’s your contract?” If it’s a
series of emails, and perhaps some text messages, and phone calls or
conversations you claim occurred, the first part of my job will be compiling
the terms of the agreement.

When there’s a single agreement, all the terms are in one
place. And when the contract requires that all changes must be in writing and
signed by both parties, it minimizes the risk of confusion or a he-said-she-said
situation.

When you don’t have the terms of the contract in a single
document, it opens the door for complications in the future. In many cases,
it’s more cost-effective to have a lawyer create a contract template for your
side hustle than to have to hire one to piece together the terms from the parties’
communications and actions.

Minimum Contract Terms

In general, I don’t advise people to write their own
contracts (unless they have a law degree or sufficient contract experience),
but here are the basic terms I’d expect to find a side hustle contract:

Parties to the contract

Purpose of the contract

Payment terms, including what happens if the customer doesn’t pay (e.g. entrepreneurs who require ½ the fee up front and ½ upon completion)

Where and how problems will be resolved, including the venue, jurisdiction, and which state law will govern

If/how the parties can make changes to the contract

“Entire agreement” – all the terms in the contract are in the agreement

“Severability” – if the contract has any invalid terms then the parties will throw those out and the rest of the contract will remain

A provision that states if a party chooses not to use a right granted by the contract, they don’t waive their right to use it in the future

When I approach a new contract for a client, I try to
mentally walk through the customer’s journey and address the problems that the
client is trying to avoid and pre-plan how you want to deal with problems when
they occur.

Using a Lawyer for
your Side Hustle

If you’re going to have a side hustle, I recommend you sit
down with a lawyer for an hour. Tell them your goals and your budget. An
understanding lawyer will tell you about the legal issues you need to be aware
of, can do a quick trademark search to see if the name(s) you want to use are
already registered, and they can tell you want you can do yourself and what tasks
you should hire a lawyer to do for you.

A Few Final Thoughts

Thinking about what missteps I’ve seen companies inadvertently
commit, here are a few extra tidbits of information:

The terms of service for a website, online course, or mobile app are contracts. Write them or have them created with care.

Please don’t rip of another company’s terms of service and just change out the company and product names. That’s a recipe for trouble. You don’t want to represent that you do things that you don’t. I’ve also seen situations where the company’s terms of service says that it’s governed by New Jersey law and the company has no connection to that state. (The company they stole the terms from was in New Jersey.)

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If you are making money from your blog, or you want to make money from your blog, you have a business. Treat it like the business that it is. You are no longer a hobbyist; you’re an entrepreneur.

Form a Business Entity
Creating a business entity is a relatively straightforward process. In general, it takes paperwork and money. Check with your state’s corporation commission or the secretary of state office to determine how much it will cost – because they significantly vary from state to state. If you have questions about whether you should form a limited liability company (LLC) or a corporation or whether you should form your business in your home state or elsewhere, as your accountant. Most clients I work with in Arizona opt to form Arizona LLCs.

The purpose of having a business entity is to protect you (the person) from liability. With a proper business entity, if the company gets sued, only the business assets will be on the line. Your personal assets (home, car, stuff, dog, etc.) will not be at risk.

Separate Bank Account and Credit Cards
You begin to protect yourself from liability by forming a business entity. The way you perfect that protection is by having separate bank accounts and credit cards for the company. You need to have a clear delineation between where you the person ends and the business begins. This often referred to as maintaining the “corporate veil.”

When you receive money as income, make sure business income passes through the business accounts. Additionally, when you spend money, use your personal accounts to pay for personal expenses (mortgage, groceries, etc.) and use the business accounts to pay for business expenses (office supplies, webhosting, etc.). To steal a line from Ghostbusters, “Don’t cross the streams.”

See your Accountant
Unless you’re a CPA, no entrepreneur should do their own taxes. You can probably make more money if you take the time you would need to do your own taxes to work on your business while someone else does your taxes for you. Having an accountant has saved me a lot of time and headaches. A good accountant is worth their weight in gold.

I love my accountant. He makes doing my taxes so easy. He’s been there to answer all my questions about what can and can’t claim as business expenses and what other information I should track, like mileage.

If you’re new to operating your blog as a business, or if you’ve been doing everything on your own up to now, do yourself a favor and hire a lawyer for an hour. Have a consultation to educate yourself about the legalities of running your business. As an entrepreneurial blogger, you want to be familiar with business formation, contract basics, privacy, copyright, trademarks, and the FTC rules regarding promotions and product reviews. There is a lot to know, but it’s not so complicated that a lay person can’t grasp and apply the concepts.

Over the last six months I’ve worked with a handful of companies that were experiencing major changes in regards to how the company is operating and who the owners are – usually resulting in one or more owners buying another one out. Sometimes the owners realize that they no longer have a shared vision and can work together amicably to resolve the situation so they can each move forward in their professional lives and sometimes it’s quite contentious. I often call the situations “business divorces.”

When these situations happen, it’s helpful to get a business lawyer involved early in the process. You may only need in our consultation to discuss the situation in your proposed plan of action. Your lawyer can act as a neutral third party who doesn’t have invested ego in the outcome of the situation. Invite your lawyer to review your company’s operating agreement or bylaws (hopefully you have these) and remind you of what courses of action you previously agreed upon in this type of conflict (assuming you made these decisions when you started the company) and how to change the status of your business with your state’s corporation commission.

Most business owners I know don’t want to think about the worst case scenario when their businesses are just getting off the ground and everyone is optimistic about the future; however, this is the best time to have this conversation and document it because this is when you are most likely to be thinking about what is fair and what is in the best interests of the company. If you wait until there is a conflict to try to have this conversation, you’re more likely to get into a battle of wills where people are more interested in what they want and/or hurting the other person.

Additionally, if you are going through a “business divorce” expect it to take longer than you’d like. There may be valuations that need to be performed on the company, documents that need to be reviewed by your lawyer or accountant, and a custom contract drafted between you and your future-former-co-owner. This may involve a significant amount of negotiation and revisions.

I actually enjoy drafting these documents to shift the ownership of the company, especially when both sides are represented by counsel. Each lawyer is an advocate for their client’s concerns without it having to be a combative situation. And we can shield our clients from the tribulations that would likely result if they tried to reach a resolution on their own. Ultimately we both want the same thing – a change in business ownership and clients who are satisfied with the outcome.

If you are in a situation where the arrangement with your fellow business owners is no longer effective, please contact me or a business lawyer in your community. If you want to connect with me on social media, you can find me on Twitter, Facebook, YouTube, or LinkedIn.

January 4, 2013 will mark the 1-year anniversary of Carter Law Firm. It’s been an amazing year. Some much has happened since the day I sent off my paperwork to the Arizona Corporation Commission and opened my firm’s bank accounts. I’ve learned so much about what it takes to be an effective business owner. Here are some of the key lessons I’ve learned.

1. Networking Can Be A Full-Time Job.
As a solo practitioner I am my business, so when I’m not doing work for my clients, I need to be out there promoting my business and networking with other business owners and potential new clients. I can easily attend 2-4 networking events a week. Networking Phoenix is a wonderful resource for networking opportunities in the Phoenix area. I used it a lot in my early days to learn about the chambers of commerce and other business groups in my area.

Early on, I went to every event I could attend. I learned that it takes a while to find my niches and watering holes where I could find clients and referral sources. I was pleased to become a member of Local First Arizona. It is a great group to meet awesome business owners and they have wonderful seminars.

2. Ask for Help.
There’s no reason for anyone in business to feel like they have to tackle any problem alone. I’ve found there are lawyers and business owners who will share their experiences, provide resources, and be a sounding board whenever I needed it. During the early days of my firm, I was on a first name basis with the state bar’s ethics hotline because I wanted to make sure I was doing everything right. I’m glad I’ve been able to pay it forward by sharing my experiences with other lawyers and business owners.

One thing I’ve learned as a business owner is that things are always changing so it’s impossible to know everything. It’s important to stay humble and teachable. And there are always new people to meet and connections to build.

3. Go After What You Want.
I’ve had to learn to be professionally bold as a business owner and to go after the experiences I want. If there’s a conference you want to speak at – apply. If you want to write a book – do it. If there’s someone you want to meet – send them an email or call them up. Just because you’re the new kid in town, it doesn’t mean you don’t have a lot to offer.

Another thing I’ve learned is you’ll never know how great you can be unless you try. Don’t fear success and don’t sell yourself short just because you have a new business.

I couldn’t be happier about my first year of business. I’m so grateful to everyone who helped make it such a huge success. I’m excited to see what the next year will bring.

National Geospatial-Intelligence Agency Ribbon Cutting by US Army Corps of Engineers

This week I had two speaking engagements on the basics of starting a business in Arizona. I thought I’d expand my list of tips into the ideal timeline an entrepreneur should follow for setting up their business.

Figure out what type of business you want to have.

Select a name for your business. From a trademark registration perspective, it’s best to pick a name that contains a word or words that don’t already exist. Also be mindful of any business name restrictions that exist in your industry.

Do a search on the U.S. Patent and Trademark Office (USPTO) website to see if someone in a similar business has registered a similar name for their business. If they have, they can prevent you from using your desired trade name. Run a Google search as well to see if someone has a similar name but hasn’t registered it with the USPTO.

Open a bank account for your business. Never use your personal accounts for business expenses or your business accounts for personal expenses.

If you have more than one owner, create an operating agreement. This is a contract that dictates how the company is owned, how you will run your business, and how you will resolve problems. You need this no matter who your partners are, including your spouse and family members.

When you have a business, you have intellectual property – at least copyrights and trademarks, and perhaps trade secrets and patentable ideas. Create an intellectual property strategy to protect these things. This is another time when you should at least buy an hour with a lawyer.

Draft contract templates for documents you will regularly use with vendors and customers. Many business owners get contract templates from the internet. This is an acceptable way to start this project, but you should have a lawyer review them to make sure they are legal and address your needs.

Ideally, every new business would have a lawyer to help them set up avoid any legal missteps, but many entrepreneurs can’t afford it. There are a lot of things you can do without a lawyer’s help, but you need to be well-informed about what your’e required to do when going into business for yourself and when it’s worth it to pay for a lawyer (like me).

It’s much easier and cheaper in the long run to consult a lawyer a few times when you’re starting your business than to have to hire one to clean up the mess that can result if you do it the wrong way.

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This website should only be used for informational purposes. It does not constitute legal advice, and it does not create an attorney-client relationship with anyone. If you need legal advice, please consult an attorney in your community.

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Ruth@CarterLawAZ.com

1938 East Osborn Road
Phoenix, AZ 85016

Disclaimer

This website should only be used for informational purposes. It does not constitute legal advice, and it does not create an attorney-client relationship with anyone. If you need legal advice, please consult an attorney in your community.

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